Low interest rates, depressed home prices and new government incentives for buyers continue to make a compelling case for homeownership. But market observers doubt the beneficial conditions will be enough to maintain or grow the percentage of Americans who own a home, even in Indiana, where rates have consistently exceeded the national average.

That’s because a new generation of potential homebuyers are less eager, or able, to jump into a mortgage. Houses aren’t seen as can’t-miss investments anymore after so much equity disappeared, and financing is hard to come by for all but the most qualified of buyers.

Then there’s the issue of jobs. Unemployment hit a 26-year high of 10.2 percent in October. The most recent figure for Indiana stood at 9.6 percent.

Fresh college grads without a job are moving back in with their parents, and those who land an entry-level position are more likely to opt for the flexibility of renting a place for a few years.

“What’s permanent and long-lasting is the feeling you don’t have to buy a house as soon as you leave college,” said Steve LaMotte, senior vice president in the multi-housing group for CB Richard Ellis. “Watching friends or family or living through a foreclosure yourself, while certainly not as scary as someone who lived through the Depression, it causes people to rethink homeownership.”

Homeownership nationwide peaked at just above 69 percent in 2004 and has been steadily dropping since, to 67.6 percent as of Oct. 31, Census Bureau data shows. A University of Utah study predicts the national homeownership rate will continue to drop, to 63.5 percent by 2020, a level not seen since the mid-1980s.

In the Indianapolis area, homeownership peaked in 2006 at about 76 percent and has since fallen to 71.8 percent as of Oct. 31, Census data show.

Indiana has outpaced the U.S. homeownership rate for as long as the government has tracked it: The state has registered above 70 percent homeownership since the 1960s, largely because of an abundance of cheap, flat land on which to build affordable housing. And market observers expect Indiana to continue to clock in with higher homeownership rates than the national average.

Most folks around here who lost homes to foreclosure probably will be homeowners again, unlike in some frothy markets like California, said George Tikijian of locally based brokerage Tikijian Associates.

“They’ll only stay away for as long as their credit forces them to,” he said. “[Homeownership] is not the panacea it’s been promoted as, but I also think when people have the ability in the area they afford it, they are going to choose to own a home. I suspect the American dream will remain as hoped-for as ever.”

Nationwide, the under-35 age group has registered the steepest homeownership drop, falling to 39.8 percent at the end of October, down almost 8 percent from the same period in 2008.

As the job market improves, the apartment industry could benefit from lower homeownership rates. The under-35 crowd has long been a promising rental demographic, and the so-called “echo boomer”—or millennial—generation is larger in numbers than the baby boomers.

In the University of Utah study, Metropolitan Research Center Director Arthur C. Nelson predicts the number of rental-home units in the United States will grow 48 percent in the next 10 years, while owner-occupied homes will grow only 17 percent.

Apartment owners aren’t seeing progress yet: The national vacancy rate hit 7.8 percent in the third quarter, the highest quarterly posting in more than two decades. Part of the problem is a growing inventory of foreclosed homes and condos now offered for rent.

In Indianapolis, the vacancy rate stands at 10.7 percent, and Tikijian Associates predicts it will jump to 11.1 percent in 2010.

“It’s more driven by jobs than anything else,” Tikijian said. “If you don’t have a job, you can’t afford your own place.”

During the last five years, college grads considered part of the millennial generation bought houses quickly, seeing them as investments and feeling pressure that renting was fiscally unwise. Even if they have a job, more young folks are expected to wait longer before switching from an apartment to a house.

Apartment owners hoping to capitalize in the long run have more pressing concerns.

Moody’s estimates that apartment values have fallen as much as 40 percent from their highs in 2007, meaning many complexes that have loans coming due in the next few years may not get refinanced unless the owners invest new capital to make up for lost value.

Getting new projects financed is next to impossible, but that could have a bright side for existing owners: If demand catches up with supply, values could begin to stabilize, Tikijian said.

The United States would have to add 2.3 million new homeowners in the next six years just to maintain the current rate of homeownership, LaMotte said.

An $8,000 government incentive for first-time buyers has lured some buyers, but it probably won’t be enough to turn back a demographic shift. At the same time more young buyers are opting to rent, aging boomers are looking to downsize, often to apartments or retirement communities.

The government will continue to offer its own incentives to encourage homeownership. President Obama in November signed into law an extension of the $8,000 tax credit for first-time buyers and extended a new credit, of $6,500, to entice those who have owned their home for at least five years to move up to a new home.•